The Ugly Truth About The Middle Class And Taxes In America

No politician on the Right or the Left is going to tell the truth about the middle class. There are just too many of them.

So, we’re going to continue to be told that the middle class is undertaxed.

That’s just not true.

It would be true if we actually had the amount of government that conservatives WANT to have, but if you look at how much government liberals WANT to have or even more importantly, how much government we ACTUALLY have, the middle class in this country is dramatically undertaxed.

There are two assumptions that underlie that statement.

* The first is that the government should take in enough money to pay its bills. If we want government services, we should be willing to pay for those services.

* The second is that ideally, everybody should be paying something and at a minimum, everyone other than the poorest Americans should at least be paying for any services they receive.

So, with that in mind, let’s look at some numbers.

* Roughly 15.1% of Americans are living below the poverty line. In reality, that doesn’t mean all of those people are poor. Since the poverty line numbers are generated based on yearly income, not net worth, a billionaire could be below the poverty line if he had a net loss for the year. With that in mind, 15.1% is probably high, but it seems like a good place to draw a line.

* Determining what level of income makes someone “rich” is much more difficult because there is no official threshold and living expenses can make a huge difference. Making $100,000 in New York or San Francisco isn’t the same thing as making that kind of money in Brownville, Texas where rent is about a quarter of what it costs in NYC.

Still, only about 7% of Americans make more than $97,000 a year. Another possible measure, perhaps a better one, would be household net worth. Since most people would consider a millionaire to be rich, let’s say that everyone with a household net worth of a million dollars or more is “rich.” Roughly 8% of American households have a net worth that high.

Now, if the poor make up 15% of the population and the rich comprise another 8%, that leaves 77% of Americans in the middle-class. Of course, that’s a debatable rough estimate, but it seems fair.

* “U.S. households are now getting more in cash handouts from the government than they are paying in taxes for the first time since the Great Depression.

Households received $2.3 trillion in some kind of government support in 2010. That includes expanded unemployment benefits, as well as payments for Social Security, Medicare, Medicaid, and stimulus spending, among other things.

The biggest payout by far is for entitlement programs: Medicare, Medicaid, and Social Security. In fact, if you want to know where we’re really getting killed, it’s Medicare.

Under the federal government’s fee-for-service Medicare program, every time a senior citizen meets with his physician or health-care provider for a check-up, lab tests or surgery, somebody other than the patient foots most of the bill. That such a program should produce runaway costs is hardly surprising. Over the years, the government has expanded the type of services covered, such as prescription drugs, and it has assumed a greater portion of the program’s finances. Medicare premiums paid by senior citizens once covered half of the cost of physician and related services. They now cover one-fourth. Copayments once covered nearly 40% of these services’ costs. They now cover only 20%.

After entitlements, the other areas where we’re spending the most are national defense, education, and interest on the debt. Members of the middle class should be paying their fair share of every one of those programs. The whole idea that we can have 8% of the population pay for Social Security, Medicare, Medicaid, interest on the debt, education, and national defense for not just themselves, but for the poor and a large percentage of the middle class is completely unworkable, defies common sense, and has a lot to do with why we have such a large debt.

We have come to a point in America where many people in the middle class claim to resent paying almost any level of taxes because they don’t feel like they get their money’s worth, but they also are generally opposed to cutting any program that may help them in any way. In the business world, it doesn’t work that way. If you want HBO in addition to your basic cable, you pay for it. If you don’t think it’s worth the money, you don’t get it. It doesn’t work that way in government because we’re borrowing trillions to give people in the middle class services that they don’t put a high value on, but don’t want to get rid of because they don’t have to pay the bill. This is not sustainable.

Either people in the middle class are going to have to accept cuts to these programs, particularly entitlements, or they’re going to have to pay more taxes. I’d much prefer cuts to taxes, but if there are no cuts, then taxes should go up. The longer we wait to act, the worse the problem is going to get and eventually, those in the middle class are going to be forced to pay more in taxes or have their taxes go up considerably. The longer we wait, the bigger the cuts will have to be or alternately, the higher the taxes will have to be.